Why Social Impact Matters in Tech: How LendUp Saved our Customers More Than $150 Million Dollars

11/28/2017 03:28 pm ETUpdated
Dec 06, 2017

LendUp
LendUp terms versus competitors in Texas

I came to LendUp because I believe that technology holds the key to solving complex societal issues. I was excited to help credit-constrained consumers solve for financial needs in a safe and convenient way while giving consumers long-term solutions to crippling cycles of bad debt by helping them improve their credit profiles and lowering their borrowing costs. Five years later, LendUp customers are improving their credit scores, and now I’m proud to say that LendUp Loan customers have saved $150 million versus what they would have spent with traditional small dollar lenders, all while improving their credit score to open up more financial options in the future.

I’m thrilled that we’ve reached this impressive milestone, but I’m even more excited about what this means for LendUp Loan customers.

Paying Less Interest Can Have Huge Impacts

Two-thirds of LendUp Loan customers report having income swings of $100 or more a month. And since our newest customers lack short-term savings — 83% aren’t confident they can cover a $400 emergency — 77% report that they often miss bill payments.

This fact is what makes affordable credit so important. When a LendUp Loan customer reaches the Prime level of the Loan Ladder, they are able to access a loan that is larger, and much cheaper, than they’d likely be able to access at a traditional small-dollar lender.

This makes a huge difference: Paying an interest rate that is often 100 percentage points less than what is routinely offered at other lenders has huge impacts on the financial health of our customers. Lower interest payments can mean filling the holes in a paycheck when hours are cut without notice, or not having to choose which bills you are not going to pay this month. At the end of the month, it can mean the difference between putting money in savings or having to borrow.

We Do this by Doing What’s Equitable

Any time a lender has increased confidence that their loan will be repaid, it should result in a lower interest rate for a borrower. That’s how lending works. The US Government doesn’t get better interest rates than Argentina because it has the stronger military, it gets the better rates because it’s never missed a loan payment. Argentina’s loan history is less illustrious.

The same principle applies to our LendUp Loan customers. When a customer has a history of paying us back, we’re even more confident they’ll pay us back again in the future. And with that increased confidence should come decreased interest. At traditional small-dollar lenders, consumers aren’t rewarded for that lower risk.

At LendUp, they are.

But It’s More Than Just Loan History

One of the incredible things we’ve learned in the last five years is that people who truly want to improve their financial health probably will. That’s why we’re so proud that our customers have taken more than 1.6 million of our Financial Education courses.

And it’s working. We know that customers who take financial literacy courses or access our free financial health resources areimproving their financial health, so we can be even more confident that these customers will repay and honor their commitment.

The Ladder is a Promise

That’s what’s so brilliant about The Ladder. By rewarding customers with points for paying back loans or taking our education courses, we can encourage the activities that lead to better terms on future loans. In doing so, we’ve shifted the interaction with our customers from a series of separate transactions to a mutually beneficial, ongoing relationship.

For our customers, the ladder makes it possible for them to access credit terms that their credit scores would likely block them from securing. And for the LendUp team and investors, it’s a promise of a business model we can all take pride in, one based on customer success and not reliant on late fees and debt traps to make money.

The Tip of the Iceberg

As more and more customers reach the Prime rung of the LendUp Loan Ladder, the savings add up. Way up!

But we are not done. We’re going to keep finding new and innovative ways to prove to the world that the definition of “credit worthy” goes beyond credit scores, and we’re going to build more financial products, like our credit cards, that are designed for this emerging middle class.

We are proud of $150 million, but we are far from satisfied. We are striving to reach $300 million in savings much faster than it took us to reach $150 million, and we’re confident we can do it.

MethodologyMeasuring how much money we saved customers wasn’t easy, mainly because it’s difficult to compare our products to other products our customers can access. To calculate savings, we pulled the listed interest rates from the websites of eight of the largest payday lenders across the country to understand the fees they charge on both traditional payday loans and larger, longer-term installment loans in each state where they operate. In each instance, the lowest listed APR for payday lenders was used to ensure the most conservative view on cost savings, and then these individual rates were averaged to come up with a single industry average. Rates varied widely from state to state based on state regulations.